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Do you feel the Indian solar market is overheating and needs to cool down to avoid problems in the long run?

My view is, the Solar market in India is evolving, it is not overheating.

With a target to have an operational solar power capacity of 100 GW by March 2022, the Indian government hasannual capacity addition targets for the next few years. By early March this year more than 5.7 GW of solar power capacity was operational in India.The Ministry of New & Renewable Energy (MNRE) plans to add 12 GW,15 GW and 16 GW solar power capacity in the financial years 2016-17, 2017-18 and 2018-19, respectively.

Most of the solar markets around the world are stagnant while we are seeing a lot of growth in India. Since India is a big market, the investors have shown a keen interest. The aggressive bidding is an initial reaction from few investors.

Will aggressive bidding by the developers create problems for the entire solar value chain?

In recent times, most government mega and ultra-mega projects that were put up for bidding received bids below Rs 5 per kwh.quoting low tariff & winning bids is not the end goal for solar companies, post that tying up finances is crucial for the success of the project

Banks are now more active in understanding how the numbers play out and they are not financing the projects unless they are convinced that it will be commercially viable.

India is also in talks with development banks like the Asian Development Bank, International Finance Corporation, KfW, the Japan International Cooperation Agency, and the New Development Bank to access cheap debt finance for setting up solar power projects.

According to the UK-based magazine The Economist, the cost of solar panels has declined by 80% since 2010, there is an expectation that cost of panels may go down further—but the panel price trend in last few months is rather flat. This will prohibit the bidders from further aggression at least for next 3-6 months.

Competition is always good. It makes the stakeholders to find out the innovative ways to optimize the costs & maximum utilization of the assets. There will be a pressure on entire value chain but I am sure that during this transition phase, each of the stake holder will find a solution to optimize the costs and make some margins to be in the business.

As the large amount of PBG’s are at the stake, the bidders must have done their mathematics before putting the aggressive bids. There will be few losers in the game but the solar market will be a winner.

Do you feel the Indian solar market is overheating and needs to cool down to avoid problems in the long run?

The Indian solar industry has come a long way since the rollout of the National Solar Mission in 2011 and last year’s fivefold increase in India’s solar generation target for 2022 from 20 GW to a staggering 100 GW. Consequently, a new trend is emerging. In pursuit of the ambitious target, the focus is shifting to bigger solar plants of 50 MW and above. Until three years ago, smaller solar plants ranging from 2-5 MW were more sought after, but these have now suddenly gone out of favour. Most of the solar developers are private equity-run companies which are under immense pressure to first get business and then step up cash flows and revenues.

But I do not think there is any overheating in the Indian solar market. In fact, recognising the huge potential of solar energy in India, the government has created conducive conditions for the solar industry to thrive, which is reflecting in the investments. If any course correction is required, the government can always revise the renewable purchase obligation of states. The need of the hour is to constantly upgrade the grids and come up with new ones to match the outflows created by new solar projects. Having connected more than 250 MW of solar power to the grid, we, at Hartek Power, feel that sustainability is the key in the long run. The solar industry will eventually consolidate, but the recent closure of a couple of leading solar developers should serve as a lesson that only companies with sustainable business models will go far. Sustainability forms the very basis on which the fundamentals of the solar business rest.

Will aggressive bidding by the developers create problems for the entire solar value chain?

Falling prices undoubtedly put EPC companies under a lot of pressure to make their projects more cost-effective and financially viable. To survive the competition, they have no option but to go for cutthroat pricing, which affects the entire value chain. At the same time, every company is free to take a call and do a cost-benefit analysis keeping in view its long-term business interests and strategies. I believe that while cost-cutting measures should be taken at all stages as per the demand of the market, there should be no compromise on quality. After all, the plant has to last a good 25 years. Eventually, everything boils down to how sustainable your business model is and how well you are able to align your operations with it by taking the right decisions at the right time.

Mr. Abhay Raina, Head - Solar, Hero Future Energies

Aggressive bidding by the developers does not necessarily imply problems for the entire solar value chain as there is now a considerable amount of experience in India on solar. Developers, EPCs and suppliers have been working day in and day out to bring in cost optimisation without compromising on technology and quality. Developers are looking at various innovative funding methods, new technologies to improve their generation vis-a-vis the cost incurred and increase their IRR’s. EPCs and suppliers of major components have also realised that the game is shifting from what it used to be at the beginning of the JNNSM, and they need to be ready to play solar T20 match, than a test match.

We do agree that due to these low bids, entire value chain is likely to be in a distress huddle although may be for a short duration. Lenders are likely to be a little apprehensive as they were initially, to comprehend the security of their loans and may continue with higher lending rates till these low tariff projects are commissioned. EPCs and other vendors is likely to be under stress in order to match expectations of developers, leading to quality deterioration. Solar industry faced the same dilemma when one of the developers bid INR 7.49 way back during Phase 1 of JNNSM, but came out of that initial shock quicker than the fall of solar tariff.

The existing challenges of the industry include discoms not being able to provide proper evacuation facility and payments on time, land continues to be a challenge, dollar rate fluctuation impacts the prices of modules, which heightens the graveness of the issue.

On the other side, an increase in the number of projects implies increased opportunities across segments of solar business, which is likely to benefit due to higher business volumes albeit lowers margins. Bigger players will not suffer much, however small businesses might find it difficult to match market expectations. With so much work on plate for EPCs, it will be also interesting to see how much can they chew and how much is left for developers to construct on own, giving rise to a sector of ‘self EPC’.

In my opinion, although low bids pose an enormous challenge for the entire supply chain, I am sure we will sail through these times with intelligent project management, financing options and use of innovative technology and solutions like use of trackers, better design of solar field, better inverters. Developers who don’t have much experience of Indian solar sector and are executing their maiden executing projects in India, may might be in a tight spot, due to non-accounting of various unseen expenses.

Projects under DCR category may find it hot to execute their projects on time and within budget, but with the support from government these issues can be sorted out. All in all, we are a mature industry now and Developers are more aware and educated to know what they are doing. Flukes in this industry don’t stay long and hence effective and water tight strategy shall be the key to success for any developer.

The Indian government took a decision in 2014 to increase the installed capacity of Solar to 100 GW by 2022. Though optimistic, the viability of this target is questionable, since this would require 15 GW installations every year and a capital of around 100 billion USD. Solar installation has crossed 5GW with approximately 4 GW being installed in the last financial year. It was record year for tariff reduction, as they breached 5 INR/ unit, with the lowest being 4.34 INR/ unit in Rajasthan. There was a price reduction of around 15% in a space of 6 months, and during this period, INR had a net depreciation of 1-2% also taking account of the RMB devaluation against USD. Since there was no major technological breakthrough and/ or reduction in material cost in this time frame, it indicates that the companies are bidding aggressively to bring down the price. Thus while executing the project, corners will be cut to save cost on the equipment and workmanship, which will affect the quality of a solar plant with a projected lifetime of 20-25 years. Razor thin margins and the volatility of INR currency could deter foreign and domestic investment significantly, making it difficult for India to achieve its targeted installed capacity. In the last month, Sunedison the Goliath of Solar power developers, and the first company in India to bid below INR 5 per unit had to file for Chapter 11 bankruptcy and is looking for equity investors in over 2 GW of finished and unfinished projects in India. This could just be the beginning and a clear indication that if the prices are unsustainable, there will be further consolidation in the market and lead to correction in the pricing model.

Ms. Ritu Lal, VP – Business Development, Amplus Solar

When compared to certain international markets – for example, the latest bids in the MENA (Middle East and North Africa) region, Mexico and Germany, the Indian market may not seem to be overheated. However, it is also interesting to note that while solar tariffsin India have been coming down, there have been no compelling factors that canexpIain this significant drop in prices.

The drop in prices has been attributed to the fall in module prices. While module costs, which make 60 percent of the project outlay,may be coming down, theitems that contribute the remaining 40 percent have a wider supply market – especially items like galvanised iron structures, transformers, cables etc. This market has seen no real reason to cut down prices exceptfor the general slowdown in the global markets.

A reduction in tariffs will surely impact the value chain. Reduction in margins is one obvious effect. However, we will also see players cutting it rather fine on technical specifications to try and squeeze out as much as possible from theircosts in order to protect their margins. This will inadvertently create pressures on the supply chain as suppliers may face issues in terms of increased warranty claims etc. Also, apart from downgrading technical specifications, reduction in tariffs will also force people to go very aggressive on other costs – designing, capex as well as operational expenses.

The fall-out from these cost-cutting measures may be rather unpleasant. It is very likely that theconsequenceswill include increases in failures, poor plant performance etc., that will have a subsequent impact on supplier and EPC reputation.

On the flip side, however, there could be a positive outcome of these actions. We may see innovations in design and materials that can help cut costs and/or increase performance.